Producer Surplus

Producer Surplus

• Producer surplus is much like consumer surplus
• As producers aim to maximise profits, they will be keen to supply to consumers who are willing to pay a price above what the producers are normally willing to accept
• If we go back to the previous table and suppose that the producer has a baseline price of £350 per holiday:
  • This is what, on average, the firm might see as a fair price for a holiday to Ibiza
  • However, there are more likely to be more consumers that are willing to pay over this price
  • So, when they pay this, they will be providing additional revenue to the producer – above what is the normal expectation
• This is what is meant by producer surplus